Explaining, Analyzing the New Proposal for Clean Power Plan Incentives

The EPA just released a series of design details that clarify the CEIP component of the CPP for both RE and EE projects. This post explains the confusing jumble of acronyms and what it means for energy efficiency and small businesses.

On Thursday, June 16, the Environmental Protection Agency (EPA) proposed a series of design elements for the Clean Energy Incentive Program (CEIP), a component of the Clean Power Plan (CPP) originally announced last year. The CEIP was designed to incentivize states to make early investments in clean energy technologies and the EPA’s new ruling helps define the program, further encouraging states to participate. These developments open a major opportunity for low-income communities and small businesses to benefit from the types of energy efficiency upgrades already enjoyed by those with better access to new technologies. The CEIP and its proposed incentives are a product of the EPA’s bold Clean Power Plan.

What is the Clean Power Plan?

The Clean Power Plan is the most ambitious step ever taken by the United States to reduce the carbon pollution caused by the generation of power. The Environmental Protection Agency first announced the framework for the CPP in 2014 and President Barack Obama released the finalized plan to the public last August. The plan is one part of the Obama administration’s attempt to mitigate the effects of global climate change. To meet its goal – a 32 percent cut to US power plant emissions by 2030 – the CPP gives each state an individual target for reducing power plant emissions and gives the states a strict timeline to submit a plan to meet that target. States have the flexibility to cut their emissions in any way they choose – abandoning coal powered plants in favor of natural gas, expanding solar and wind infrastructure, or favoring greater energy efficiency efforts – as long as they meet the EPA’s goals.

The CPP faced legal challenges immediately after it was announced. More than half of the states, along with many industry groups, filed applications for the courts to place a halt on the CPP’s requirements. The DC Circuit Court denied the request earlier this year, but the US Supreme Court reversed the decision and granted the stay sought by the plan’s opponents. By granting the stay, the Supreme Court prevented the EPA from taking any actions to enforce the CPP.

Although most of the CPP has been put on hold, the EPA is now arguing that one component of the plan, the CEIP, is voluntary and therefore not subject to the court’s ruling. Last week’s announcement regarding the CEIP focuses on an optional element to the CPP, a distinction the EPA believes will allow it to proceed with plans to promote clean energy.

What is the Clean Energy Incentive Program?

The Clean Energy Incentive Program provides federal funds to help states meet the clean energy mandates established by the CPP. It is a voluntary incentive program that removes many of the barriers preventing investment in clean energy technologies. Through a complicated matching-credits system, it rewards states who choose to make early investments in either renewable energy (RE) generation and/or demand-side energy efficiency (EE) measures. In short, under the CEIP, emissions reductions made by states in 2020 and 2021 will count at least twice as much toward meeting the CPP’s goals as similar improvements made in 2022 or after. The program itself does not provide funding for clean energy, but is designed to encourage the states to provide the funding.

Of course the CEIP matters little without the regulatory bite provided by the CPP. The program’s rewards are regulatory, not financial. But the EPA and industry experts appear confident that the Supreme Court’s stay is only temporary. When the stay is lifted, the proverbial carrot provided by the CEIP will be as enticing as ever.

What changed last week with the EPA’s announcement?

The proposal unveiled by the EPA last week was more of a clarification than a change of policy. After holding dozens of meetings with stakeholders and the public, the agency incorporated their feedback and more clearly outlined program eligibility and the terms of participation. Although the new details do not amount to a dramatic change in direction, they are significant nonetheless. The EPA has chosen to define eligibility and participation broadly, expanding the number of projects and communities that will benefit from the program. These broad definitions extend to both renewable energy generation and energy efficiency measures. More projects, and thus more people and communities, will be eligible under the CEIP and therefore more people will enjoy the benefits of cleaner energy.

By defining terms and specifying certain design details in this way, the EPA made two things clear:

The agency will not be dissuaded by recent legal setbacks

The agency remains aggressive in its pursuit of clean energy

Why is this announcement good for energy efficiency?

This one is simple. The CEIP rewards state contributions to energy efficiency in low-income communities. By choosing broader definitions – of project eligibility, of low-income communities, of energy efficiency as a whole – the EPA is maximizing its support for EE under the CPP. More EE projects will fall under the umbrella of the CEIP, inspiring states to expand their support for efficiency.

Even better, demand-side EE projects are eligible for 2-for-1 credits from the EPA. This means that EE measures will receive two extra “credits” under the CPP for every one MWh of avoided energy generation. The 2-for-1 policy rewards the clean energy saved by efficiency twice as generously as a MWh created by a wind farm or solar panel. This ensures that energy efficiency remains competitive with renewable power and highlights that the EPA views EE as an essential component of a clean energy economy.

Why is this announcement good for communities?

Another simple one. The EPA’s new CEIP proposal gives a flexible definition of low-income communities. States can determine which types of EE projects will qualify for CEIP awards “so long they are implemented in communities that meet the state’s approved definition(s) for ‘low-income community,’” the type of expansive definition designed to invite rather than limit program participation. Allowing the states to choose their own definition of “low-income community” is a huge plus for low-income residents. With the states choosing the terms of eligibility, more residents will qualify and more communities will reap the rewards of the program.

Why is this announcement good for small businesses?

This question is a little trickier, but no less important. After hearing from a number of stakeholders, including Lime Energy, the EPA determined that small businesses face the same challenges as low-income residents when it comes to accessing energy efficiency resources. They have the same energy risks – large bills, disproportionate energy spending, and shutoff threats – and also suffer from the same lack of capital and expertise as the residents of low-income communities.

For these reasons, the EPA recommended that states consider commercial EE projects reducing demand in buildings that provide services to and/or within low-income communities or households. This recommendation is huge for small businesses in these areas. Lime Energy has long recognized that small businesses are integral to the communities they serve. The EPA’s ruling agrees, correctly suggesting that support for efficiency in low-income communities will benefit both the owners of those business and the communities where they reside.

What is next?

As always, the future is the great unknown. Unless and until the Supreme Court removes the stay on the CPP, the incentives and the rewards provided by the CEIP remain theoretical. But by releasing these new design details, the EPA is preparing to hit the ground running if/when the stay is lifted. The new CEIP specifics released by the EPA last week will ensure that when that moment occurs, it will be those with the least access to energy efficiency resources – low-income communities and small businesses – that benefit the most from the program’s incentives.